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re: Switch to 100% post tax retirement contributions into a Roth at midpoint of career?
Posted on 7/26/18 at 9:37 am to baldona
Posted on 7/26/18 at 9:37 am to baldona
quote:
Do the simply math, would you rather pay 25% taxes on 20% more money or 22% on 20% less? I mean the difference is 17% more money!!! Sure that's basic math, but we love to over complicate matters so we pay less money when in reality that's a less important goal.
Can you expound on these numbers with a bit more detail?
0
Posted on 7/26/18 at 9:38 am to baldona
quote:and you waaaaaayy oversimplified it
People waaaay over think this.
Posted on 7/26/18 at 9:50 am to castorinho
quote:
and you waaaaaayy oversimplified it
Yep
Posted on 7/26/18 at 9:53 am to castorinho
Without getting into specifics, diversification of account types can be very helpful for retirement planning. In short, it creates optionality which will have guaranteed tax value in retirement. Projecting tax rates is impossible so diversification of account types is a hedge on that unpredictability.
Posted on 7/26/18 at 10:45 am to lynxcat
quote:
Projecting tax rates is impossible so diversification of account types is a hedge on that unpredictability.
This is quite important. I would say it might be better to put more into Roth early in the career, if you expect your family income to exceed Roth limits.
Posted on 7/26/18 at 10:49 am to brian_wilson
Yep. If you can, there really isn’t a reason not to contribute to a Roth. Taxes will be a constant. Everyone should have some source of tax free retirement income as part of their portfolio.
Posted on 7/26/18 at 10:55 am to GoCrazyAuburn
quote:
Yep. If you can, there really isn’t a reason not to contribute to a Roth. Taxes will be a constant. Everyone should have some source of tax free retirement income as part of their portfolio.
Roth is a steal of a deal for retirement. I really wish they would remove or lift the income limits. If you live in a city, $199k isn't that much money for a family. Its a lot but not that much.
Posted on 7/26/18 at 10:55 am to baldona
That is the dumbest thing I have ever read. If you Max your contribution to either a roth 401k or traditional 401k, you will have the same amount in either retirement account. The only difference is one will be a tax free distribution.
Posted on 7/26/18 at 10:58 am to tigeralum06
quote:
That is the dumbest thing I have ever read. If you Max your contribution to either a roth 401k or traditional 401k, you will have the same amount in either retirement account. The only difference is one will be a tax free distribution.
He’s arguing that doing it pretax, you get an instant 15-35% return on savings on taxes. It’s dumb.
Posted on 7/26/18 at 12:11 pm to GoCrazyAuburn
quote:
He’s arguing that doing it pretax, you get an instant 15-35% return on savings on taxes. It’s dumb.
I'm not arguing, its fact. If you want to put a set amount in either account, then no shite a roth or after tax is better. But that's not how it works, at all.
The benefit of a pre-tax is the "pre" tax part. Your money is going to be taxed before you put it in the post tax portion. For most in this argument its going to be 20%+ tax bracket.
Explain how I am wrong?
The fact is you can put 20% more into a pre tax account than you can a post tax amount, and end up with the same amount of money post tax. Let that compound over time, run some calculations.
You are not ending up with the same net amount at retirement, if you are then you did some poor pre-tax investing.
Posted on 7/26/18 at 12:18 pm to tigeralum06
quote:
That is the dumbest thing I have ever read. If you Max your contribution to either a roth 401k or traditional 401k, you will have the same amount in either retirement account. The only difference is one will be a tax free distribution.
Why would you invest the same amount post tax as you would pre-tax? That's the dumbest thing I've heard.
The ENTIRE reason to do pre-tax, is so you can invest more of you money.
Posted on 7/26/18 at 1:15 pm to baldona
quote:
Why would you invest the same amount post tax as you would pre-tax? That's the dumbest thing I've heard.
You know of a way to pay more than the max into a retirement plan that nobody else does?
Posted on 7/26/18 at 1:30 pm to GoCrazyAuburn
Those sneaky phase out and max contribution limits really throw a kink in all of this...
Posted on 7/26/18 at 1:35 pm to baldona
quote:
Explain how I am wrong?
Well, for starters, you realize roth’s Aren’t taxed at distributions at all, right? So you’re 25% tax on 20% less vs 22% tax on 20% more is just wrong.
Posted on 7/26/18 at 1:36 pm to lynxcat
quote:
Those sneaky phase out and max contribution limits really throw a kink in all of this...
Well that, and you know, the fact you pay taxes on gains in the traditional as well where as the Roth the gains and contributions are tax free for qualified distributions.
Posted on 7/26/18 at 2:08 pm to GoCrazyAuburn
Are dividend payments from Roth tax free after 59 1/2? In other words keep the principle in there but live off the dividend checks scenario.
This post was edited on 7/26/18 at 2:09 pm
Posted on 7/26/18 at 2:11 pm to weagle99
Contributions and earnings are not taxed in the Roth 401k as long as you’ve had it for 5 years and is after 59 1/2 or due to a disability or death.
Posted on 7/26/18 at 2:14 pm to GoCrazyAuburn
Thanks much. The more I learn about Roth the more I realize what a powerful tool it is. In one of my Roth IRAs I am just buying and holding high dividend paying stocks. 
Posted on 7/26/18 at 2:19 pm to weagle99
Roth’s are amazing. Especially early in your career, I’d do a Roth over everything else (assuming you’re getting the max match out of a 401k). If it is traditional vs Roth 401k, i’d so a Roth as long as I could. Now, as another poster said, you want to have tax diversification, so I wouldn’t only do Roth’s.
This post was edited on 7/26/18 at 2:20 pm
Posted on 7/26/18 at 2:23 pm to baldona
quote:
Why would you invest the same amount post tax as you would pre-tax? That's the dumbest thing I've heard.
The ENTIRE reason to do pre-tax, is so you can invest more of you money.
So the thing is roth money is tax free at disbursement. If you have to take everything out and have it be taxable, this impacts your planning in retirement as taxable income will impact things like medicare / obamacare / marginal tax rates.
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